Treasury Secretary John Snow’s reaction a few days ago to suggestions that a weaker dollar would help our economy reminded me of something I once read about how people in different cultures react to a diagnosis of cancer.
As my memory serves me, Japan and Hungary stand out as countries where fear of cancer is so pronounced that everyone involved collaborates in elaborate rituals of denial. Japanese doctors do not tell patients that they have cancers. Instead, they are told that they have “tumors” or “infections.”
But the dreaded word “cancer” is never uttered.
The doctors do tell immediate family members who instinctively know the role they must play. Patients go through surgeries, chemotherapy and radiation treatment without anyone ever saying that they have “cancer.”
Of course, virtually every patient knows what he or she really has. The doctor and family members all know that the patient knows. The patient knows that the doctor and family know that the patient really knows … and so forth.
On and on, in what philosophers call an “infinite regress,” until the patient recovers or dies, but all without anyone uttering the dread word “cancer.”
In rural and working class Hungary, patients are given the diagnosis, but there is such a sense of shame about having cancer that they don’t tell neighbors or colleagues or family members even though, as in Japan, most eventually know what is really going on.
Here’s the parallel with the U.S. trade deficit and the Bush administration’s fetish about a “strong dollar”:
Snow has a Ph.D. in economics and knows darned well that a weakening dollar is great news for the U.S. economy.
And like his predecessor, Paul O’Neill, he understands that the U.S. Treasury cannot and has not done anything to make the dollar strong or weak.
And the reporters who carefully take note of his pious comments that there will be no change in the “strong dollar” policy realize that the secretary is dissembling.
And Snow knows that the reporters know he knows that they know, and so on in the same sort of infinite regress of denying the obvious.
And even the Wall Street pundits whom reporters call for comments on the trade numbers understand that extreme trade flows balance themselves out with the inevitability of the sun setting in the west. But if their employer happens to be holding a foreign exchange trading position that depends on yet a few more weeks continuation of the overvaluation of the dollar, they will argue that the firmament will be rent from top to bottom if Cabinet officials, such as Snow, do not continue to lie with a straight face.
I can’t criticize Japanese culture for the peculiar approach it takes to cancer. The Dutch Calvinist and Lutheran communities where I grew up react the same way when someone born there dies of an AIDS-related illness. Every culture deals with issues of grief and shame in its own way.
But the Bush administration’s obsession with maintaining the lie of a “strong dollar policy” is mind-boggling. As one of my professors once said, “The depreciation of an overvalued currency is like a good bowel movement. It is natural, it usually is healthy, and it always takes place sooner or later, though not always at a convenient time.”
Indeed, the fact that the value of U.S. imports grew relative to exports as 2002 ended was symptomatic of some healthy cheapening of the dollar relative to the euro and other currencies. While a cheaper currency is good in the long run in that it encourages production and exports and discourages consumption, the process is instantaneous.
In what economists call the “J-curve” effect, a weaker currency at first increases a trade deficit. Imports decided on at the old exchange rate cost more in the newly cheaper currency when they actually are booked. The higher-import price effect of the cheaper currency eventually will cut imports. But it makes those already in the pipeline more expensive in the short-run.
The value of the U.S. dollar relative to other currencies is only a symptom of more fundamental factors. But it is an important symptom, one that is far too important to be the subject of a “policy” dictated by the political savants but economic idiots who apparently dominate policy decisions in the White House these days.
We would all be better off if they would just let up and let Cabinet officials state the obvious as Paul O’Neill did nearly two years ago when he opined that there was not much the administration could do to manage the dollar.
Out of the mouths of babes and ex-CEOs cometh forth knowledge.
© 2003 Edward Lotterman
Chanarambie Consulting, Inc.